Usury Oak.Com? Hidden Costs of internet lenders or buying REO property

A fellow closing professional recently asked us:

From: “lay professional”
“Sent: Monday, March 12, 2012 11:57 AM
To: cpittman@pittlaw.net
Subject: Question for you :

Charlie – what are the laws in regards to record and disperse of funds from a closing. I thought everyone had 48 hours to record and dissperse. See email below that we received from Lawyers Advantage Title Group’s MD office. All the 3rd party closings are now going to their office to close. The file closed: 3-2-12 and my agent still has not gotten paid. I sent an email to them on 3-8-12 and below is what they responded:
When a VA property closes in Maryland you need to understand that once closed the file needs to be returned to the Maryland office, then we need to send the recording out and we cannot disperse until we are recorded. I apologize for any delay.”

Many people refer to the “Wet Settlement Act” as a federal law. But it is not. It is a Virginia law and I suspect Maryland has a similar law.  See for Virginia closings and banking institutions: § 6.1-2.10.   Also,  § 55-525.11. Duty of settlement agent.

“The settlement agent shall cause recordation of the deed, the deed of trust, or mortgage, or other documents required to be recorded and shall cause disbursement of settlement proceeds within two business days of settlement. A settlement agent may not disburse any or all loan funds or other funds coming into its possession prior to the recordation of any instrument except (i) funds received that are overpayments to be returned to the provider of such funds, (ii) funds necessary to effect the recordation of instruments, or (iii) funds that the provider has by separate written instrument directed to be disbursed prior to recordation of any instrument.”

It is not unusual to see lenders and out of town settlement agents take the law lightly. I don’t know if they feel they are availing themselves of a loophole in the law or  perhaps that the beneficiary of the law IS THE LENDER and not the consumers and realtors and other professionals that labor to make the closing happen and as such the law is irrelevant to them.    Perhaps banks that are selling REO or bank owned properties also feel protected by some of the many provisions in the God awful REO sales agreements that allow them to take more than 48 hours to disburse.

The bottom line is that these statutes may not give much protection to anyone but the seller/bank in REO sales!

One national internet based refinance lender (that shall remain unnamed, but note that their name references a loan arbor in its name), uses practices that illustrate this crazy, inefficient way to do business.  They have a California Settlement Agent for Virginia closings! They send out a notary to the borrower’s home in VA.  After they are signed, the Notary Public fedexes the documents from closing to the California Settlement Agent and they in turn fedex the documents from California back to the Clerk of Court where the property is located a few days later. The Wet Settlement violation is often avoided on a refinance due to the 3 day right of rescission, but it still leads to egregious situations. For example, the inevitable rejection of some loan documents by the local Clerk of Court becomes a potential toxic mess. Some Clerks hold the rejection notice in an in-house mailbox until the out of town settlement agent sends a courier to the Clerk’s local office  to check the in-house mailbox!   Or the Clerk may wait for the settlement agent to send postage money or supplemental recording costs which they may not find out they need to send for months! If the homeowner proceeds to sell or refinance again, or  — as has apparently been the case more than once — if the homeowner doesn’t make payments and is foreclosed upon, the Trustee in Foreclosure cannot begin the auction process because the documents are not recorded yet!  The use by these California settlement agents of only notaries public to do closings should be a big cost saver to the Virginia borrower . . . but upon further review, most of these closing fees paid on these Settlement Statements (directly by the borrower or in the form of a higher refinance loan amount) are comparable to using a closing attorney licensed in Virginia who can actually represent and protect the borrower! I suspect that the additional overhead of covering the losses suffered from misrecorded documents more than negates any cost savings by using a Notary closing.  There is just no substitute, even in this electronic age, for knowing and understanding the personnel and operations of the local Clerk’s Office.

Next time your Seller puts a provision in your contract requiring you to use their settlement agent or the lender requires or induces you with promises of paying your closing costs to use their Notary to do your closing, make sure you are aware of all the hidden costs and dangers by having the final contract or loan commitment agreement reviewed by an attorney before you sign it!

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